Telstra sells CSL for $2bn

Telstra is set to bank of a profit of $600 million from the sale; the telco said the proceeds would lift its cashflow guidance to $5.1 billion from $4.6 billion this financial year.
Photo: Peter Morris

Telstra chief financial officer
Andy Penn
would not comment on whether the proceeds would be used to return cash to investors or fuel further acquisitions in Asia until after the transaction was complete.

“We’d need to take into account the market dynamics, our franking situation and the various different options that are available to us, including organic investment as well as inorganic investment," Mr Penn said.

But Telstra was keeping all options open, he said.

Regulatory approval is expected to take around 90 days, with Telstra anticipating the deal to be finalised by the first quarter of 2014.

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“We’re not emotionally driven just to do deals," said Telstra chief executive David Thodey.

“We’re always very disciplined around our capital management framework. If we can realise more value by making a sale that’s what we’ll do, versus just continuing on in the market for the sake of it," said Mr Thodey.

The CSL assets were acquired by Telstra between 2001 and 2002 for the equivalent of around $4 billion, factoring in currency rates at the time. It later wrote down the value of the assets.

Pacific Century CyberWorks (PCCW), which originally sold Telstra the CSL assets, is the holding company for HKT, which is now buying them back at a discount to what it sold them for over 10 years ago.

CSL’s compound annual revenue growth rate was 9.4 per cent over the last three years, said Mr Thodey.

The company made up the majority of Telstra’s international revenues in financial 2013, at $1.01 billion, and expanded its customer base by 12.3 per cent. The $2 billion price tag marks a 9.5-times valuation on earnings of $249 million in 2013.

Asia strategy

The sale of CSL marks Telstra’s final exit from all mobile operations outside of Australia. It sold its New Zealand business, TelstraClear, to Vodafone New Zealand last year for $660 million.

Mr Thodey told investors earlier this year that CSL was a strategic investment for any potential move to establish a mobile business in greater China. But he said on Friday that the exit from CSL would not endanger any plans for the lucrative market.

Earlier this year, China began a two-year pilot program allowing foreign companies to resell access to its state-owned mobile networks but currently caps foreign ownership at 10 per cent.

It would allow Telstra to enter the market early next year, according to analyst firm CIMB.

“We’ve made a judgement at the moment that it’s not critical to have a property in Hong Kong to participate in being a foreign [mobile reseller] in China, should we like to do that," Mr Thodey said.

Telstra has targeted Asia as an important growth area and Mr Thodey said the company remained committed to pursuing further revenue streams in the region.

“We want to leverage out domestic strengths to grow our global footprint. The team is focused on refining and enhancing our strategy across Asia and identifying further opportunities to build our capability in the region."